AB 1552 – DEAD
This year, the California Legislature considered Assembly Bill 1552, which would have mandated that insurers provide retroactive coverage for business interruption (BI) policies that weren’t designed or funded to cover a society-wide pandemic.
Specifically, AB 1552 would have created a “rebuttable presumption” that COVID-19 was present on insured property and caused “physical damage” to that property which was the direct cause of the business interruption.
BI policies are priced to cover physical damage that is temporary, repairable and affects a small part of the population. Viruses, like COVID-19, are not insurable because they hit everyone at once. The rates customers pay for BI policies reflect this level of coverage and would be many times more expensive if designed to cover all businesses at once.
AB 1552 threatened US and global financial stability. According to the Insurance Information Institute, insurers have approximately $800 billion to cover existing policyholder needs across all types of insurance, for both personal and commercial lines. Retroactively including COVID-19 in BI policies, for which no premium was ever collected for, would cost an estimated $150 to $380 billion per month – bankrupting the entire insurance industry in a few months – and leaving no money to pay auto or wildfire claims
Earlier this year, the PIFPAC team sent out our first call to action. The State Farm Government Affairs team sent a similar call, but the two calls had important differences. The PIFPAC call to action requested that members reach out to their local Chambers of Commerce to oppose AB 1552, while the State Farm call encouraged agents to reach out to their legislators.
Implementing the PIFPAC call to action provided an opportunity for local Chambers of Commerce to hear from local business owners that would be harmed by retroactively changing insurance coverages where no premium was collected. After this effort, the California Chamber of Commerce joined us in opposing AB 1552.
State Farm’s targeted call to action on AB 1552 generated an impressive 432 calls to State Legislators. From the PIFPAC call to action, we achieved aresponse rate of 3.6%. Average response rate for political calls to action is somewhere between 2% and 3%, so it’s another example of the resilience and potency of PIFPAC membership.
We are pleased to report that thanks to PIFC, PIFPAC members, State Farm agents and employees – and more – AB 1552 died in Senate Insurance Committee in early August. Think of the force that we were able to harness in you, the face of the industry. Thank you for helping kill this extremely harmful bill!
AB 2367 – DEAD
Early this year, PIFC opposed AB 2367. AB 2367 (Gonzalez) died in the Assembly Insurance Committee in early May.
AB 2367 would have established a task force to develop community and home hardening standards – and would have required an admitted insurer to write or renew a policy for an existing property that is certified by the Task Force. We know you don’t want to nonrenew your policyholders. But is forcing you to take on unreasonable risk – indefinitely – really the way to go?
Insurance coverage mandates, such as the one proposed by this measure, threaten insurance availability for all Californians. History has demonstrated that when states try to force companies to sell insurance at an inadequate price, with uncontrollable risk, it ends badly for everyone. In California, after the 1994 Northridge earthquake, insurers were required to offer earthquake insurance despite concerns that they would not have enough money to pay claims if another big earthquake hit. As a result, by January of 1995, companies representing 93 percent of the California homeowners’ insurance market had either restricted or stopped writing homeowners policies, sending the California housing market into a tailspin.
Bills like AB 2367 (Gonzalez) are why we work hard to anticipate legislative threats and monitor bills that are more thoughtful. In comparison, AB 2167 (Daly) would have provided a comprehensive solution that would have resulted in increased availability of admitted market insurance with better coverage and lower rates than the FAIR plan, and reduced risk of catastrophic wildfire through home hardening and community mitigation.
SB 1199 – DEAD
PIFC has also opposed SB 1199, authored by Senator Mike McGuire. SB 1199 died in the Assembly, as the bill was pulled at the request of the author. In the bill’s early versions, major provisions of SB 1199 would have:
Established the Commission on Home Hardening to develop a 3-tiered system of fire prevention levels for structures and communities in the Wildland Urban Interface, and guidelines for certifying those structures and communities that meet the new standards.
Required the Commission to work with stakeholders to develop the 3-tiered system and related regulations.
Required an admitted insurer to provide coverage on any residence that receives a certification, and provide premium discounts of 0%, 5% or 10% based on the tier.
Required an insurer to provide coverage for any residence located in a community certified under the wildfire community hardening standards.
Yet again we faced a policy idea that seemed consumer-friendly but may have actually resulted in more nonrenewals and risked insurer solvency. While the average price of homeowners’ insurance in the United States has increased 53% in the last 10 years, it has only risen 10.6% in California. When SB 1199 (McGuire) would require discounts based upon unproven mitigation savings, it becomes untenable for insurers that are trying to serve California homeowners based on already inadequate rates. Further, this bill not only mandates a problematic rate scheme, but would also eliminate an insurer’s ability to manage risk. The combination of inadequate rates and unmanageable risk would put California insurers in jeopardy of financial collapse.
As the author worked with our lobbyists, the bill was significantly amended. But, unfortunately it did not reach a place where we could support the bill. When PIFC continued to oppose, Senator McGuire shelved the bill.
AB 3074 + AB 3164 – ON THE GOVERNOR’S DESK
PIFC also supported two bills by Assemblymember Laura Friedman: AB 3074 and AB 3164. AB 3074 enhances existing defensible space protections through the creation of an ember-resistant zone (0-5 feet from the structure) for homes in very high fire hazard areas. AB 3164 require CAL FIRE to develop a wildland-urban interface wildfire risk model to determine the risk for a community or parcel within certain areas of the state. The bill will also establish an advisory workgroup that includes, among others, representatives from insurers and insurance research organizations.
PIFC is committed to supporting new policies that help reduce the risks associated with devastating wildfires that have become part of California’s “new normal,” especially as the state continues to battle record breaking wildfires.
AB 3164 and AB 3074 passed out of the Legislature and are headed to the Governor’s desk for signature.